A dragon’s roar disrupted the quiet hallway in front of the Tilly’s Inc. store at the Ontario Mills outlet mall last week, startling some shoppers and prompting others to take a closer look.
“That’s cool,” said Michael Stevens as his friend darted inside to pose for a photo with the animated beast lurking at the retailer’s shop window.
The augmented reality promotion is part of the Irvine-based apparel maker’s marketing strategy shift, which prioritizes “direct consumer interactions over broad-brushed marketing campaigns” as the retail industry in general continues to experience a downward trend in traffic to stores.
Tilly’s also just wrapped up an “all-store augmented reality scavenger hunt” it developed in partnership with social media star Shonduras. Shoppers searched for specific items at the stores and scanned them via Tilly’s app to enter sweepstakes and access augmented reality content—Shonduras’ icon interacting with merchandise. Other recent in-store promotions included a meet-and-greet with DJs Steve Aoki at the Boca Park Marketplace in Las Vegas and Kaskade at its Irvine Spectrum store.
There’s more to come, but the retailer’s management is “not ready to release details yet.”
“We believe that these kinds of marketing efforts improve customer engagement and generate excitement about Tilly’s,” Chief Executive Ed Thomas said during a recent earnings call. “We’ve seen really consistent improvement in traffic across the board, despite the fact that obviously, it’s a very difficult environment out there … We made the shopping experience fun, and we’re going to continue to do those types of things going forward.”
Savings
The shift in marketing strategy has enabled Tilly’s to “reduce aggregate spending and improve the efficiency of that spending over the past several quarters,” according to Thomas.
The Irvine-based retailer, which operates 221 stores in 31 states, posted $259.8 million in sales for the first half of its fiscal 2017, which ended July 29, an increase of $3.1 million, or 1.2% compared to the year-earlier period. It reported a $2.5 million decrease in marketing spending. The move follows last year’s $4.3 million reduction in selling, general and administrative expenses, which Tilly’s attributed to “more efficient marketing.”
Spending cuts also helped offset a $6.2 million legal fee that Tilly’s paid to settle a class-action lawsuit alleging violations of the Telephone Consumer Protection Act of 1991. Lauren Minniti was the lead plaintiff in a suit, which accused the retailer of sending unsolicited automated messages to cellphones and sought damages of $500 per violation.
Stores
Tilly’s, even with foot traffic picking up, is tempering the expansion of its bricks-and-mortar portfolio for now—it plans to close three stores and open two by year-end, ending with a total of 220.
“We have a lot of deals under negotiation in the pipeline,” Thomas said. “We haven’t yet decided to accelerate the growth, but certainly we’re positioning to add a lot more stores than what we’ve added in the past … The immediate focus is to fill in in newer markets where we have a small amount of stores.”
The management team is also working on “driving store occupancy costs down as best we can. It’s a slow process with moderate results thus far. However, we remain in a great position to make further progress over the next couple of years with an aggregate of nearly 120 lease decisions to make from now through 2019 through a combination of lease kick-out opportunities, explorations and extension options.”
Tilly’s same-store sales, including e-commerce, increased 2.1% in the second quarter. “[E-commerce] sales (alone) increased 3.9% and represented 12.1% of our total sales versus 11.9% a year ago,” according to Chief Financial Officer Mike Henry.
The company launched customer pickup a few months ago, enabling consumers to buy an item online and collect it at a nearby store if available. Thomas said the effort has “worked pretty well” and “proven to drive more traffic to stores.” Tilly’s is also developing a “ship to store program,” where online goods not available at a store can be shipped there, usually free of charge.
Hezy Shaked and Tilly Levine founded the retail chain in 1982. It went public in 2012 at $15.50 per share, and closed late last week at about $11 per share and a market value of $318 million.
